Mark McGowan has put the nuclear option on the table hoping he won’t have to use it.
No politician likes to tinker with State Agreements. With good cause. These things separate us from Africa as an investment destination. Without them, companies would never invest in a project lasting a generation for fear they will have the rug pulled from under them by a different government in a different decade.
The Premier is in a pickle with this one though because the State Agreement governing Sino Iron has turned out to be a bit of a dog.
It’s nobody’s fault. We just happen to live in particularly interesting times.
Who, 10 years ago, would have thought there would be a situation where a tenement holder (Clive Palmer), who gets richer when more iron ore is mined, would ever want to discourage his tenant (CITIC) from producing?
Who would have thought that CITIC, which fell over itself to give Mr Palmer $500 million for the right to mine and was more than happy to pay a surcharge not only on the raw material dug up (Royalty A) but also on the processed product (Royalty B), would one day want to renege on the original deal?
And who would have thought Mr Palmer would one day be a politician who relished the electorally advantageous chance to position the business showdown as Aussie Clive versus China Inc?
Having 20:20 vision while looking in the rear-view mirror isn’t going to help 3000 workers whose jobs are on the line because of a fight between very powerful and very rich men over what essentially is nothing more than a rubbish dump.
That’s what Sino Iron’s tailings dam is: a big, ugly rubbish dump which is filling up fast because for every three tonnes of rock mined at magnetite iron ore operations such as Sino Iron, two tonnes end up as waste.
Palmer says CITIC is welcome to expand their operations; they just need to cough up $750 million. It’s a figure he says they can afford.
“They also have more than $140 billion cash in the bank, which is five times the Australian defence force budget, and they export more than $2 billion of West Australian resources to China every year,” he said this week in a press release which was loaded with the kind of nationalistic language that plays well with some voters.
The language Mr McGowan used when asked whether he would change the State Agreement under which CITIC and Mineralogy labour was calculated: “I urge Mr Palmer to resolve the issues with CITIC as soon as possible to ensure CITIC can continue to operate.”
He didn’t say: “I urge both parties to resolve the issue.” He didn’t say “I urge Mineralogy to resolve the issue.”
The Premier put the ball squarely in Mr Palmer’s court and came perilously close to assigning blame for an absurd situation where a $US10 billion project is in jeopardy for want of the official lodgement of a few documents.
Mr Palmer likely doesn’t care too much about Mr McGowan’s opinion. After effortlessly squeezing $1 billion from his loss-making tenant over the years, he is confident CITIC Pacific’s parent company will continue subsidising its bastard stepchild in the Pilbara.
The Queenslander could be right, for two reasons.
First, nobody wants to write off such an enormous investment.
Second, China desperately wants the high-grade product Sino Iron produces.
The question for Mr McGowan and 3000 workers is whether CITIC wants it at any cost.